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Mexico To Use Billion Dollar Oil Fund To Plug Budget Shortfall

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Mexico may use up nearly half of the money in its rainy-day oil fund to plug a shortfall in budget revenues, after that fund declined in the first half of 2019 on the back of disappointing revenues from oil.

Mexico could use as much as US$6.3 billion (121 billion Mexican peso) out of the oil fund’s US$15 billion (296 billion peso) reserves to plug the gap in its budget revenues, Bloomberg quoted Alejandro Gaytan, chief economist at the Mexican Finance Ministry, as saying this week.

The government continues to target meeting its goal of posting a primary budget surplus of 1 percent of its gross domestic product (GDP), Gaytan told reporters, as carried by Bloomberg.

However, oil revenues in Mexico have been lower this year and contributed to the deficit in the budget revenues in the first half of 2019. According to Bloomberg, Mexico’s oil revenues were US$5.6 billion (108 billion peso) short of the estimated oil income for H1 2019.

Mexico’s slowing economy has just escaped a recession by a hair’s breadth after growing by 0.1 percent in the second quarter, following a 0.2-percent contraction in the first quarter. Technically, recession in an economy occurs when a country has two consecutive quarters of contracting economy.  

Mexico’s slowing economic growth and falling oil revenues come six months after populist left-wing President Andrés Manuel López Obrador took office and started to halt many of the provisions in the energy reform of his predecessor Enrique Peña Nieto, who opened in 2013 Mexico’s oil and gas sector to private investment for the first time in seven decades. Related: Chinese Investments In the U.S. Plunge 90% Under Trump

López Obrador has criticized the energy reform, vows not to call new bidding rounds for foreign oil companies for oil exploration and production in Mexico unless those companies show results, and seeks a greater role for indebted state oil firm Pemex in reversing the downward trend in Mexican oil production.

Economic growth in Mexico has weakened due to an under execution of the budget, labor strikes, and fuel shortages, Alejandro Werner, Director of the Western Hemisphere Department of the International Monetary Fund (IMF), said earlier this week in an updated outlook for Latin America and the Caribbean.

“In Mexico, uncertainty remains high due to certain policy reversals, notably pertaining to energy and education reforms. There are also continuing concerns about the financial health and prospects of Pemex,” Werner said.

By Tsvetana Paraskova for Oilprice.com

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